Archive for January, 2016

Strong growth in transportation and warehousing, led by limo services (which is where Uber and the like would show up if they are getting picked up), has added fuel to the argument that Uber is a disruptive technology. That’s going to be hard to prove: the author of the theory of disruptive innovation, Harvard Business Schools’s Clayton Christensen, argues that it isn’t.

It’s worth taking a look at the article. Christensen at al. suggest that his theory may is “in danger of becoming a victim of its own success,” and that many of the people who throw it around have not “read a serious book or article on the subject.” In his recap he notes that his use of “disruption” relates to the process in which established businesses are challenged by small companies with fewer resources. He notes that incumbent companies tend to focus on the demands of their most demanding (read lucrative) clients, which causes them to go too far for some segments, and not far enough for others. The newcomer targets the neglected segments, and offers services, generally at lower prices, to them. The established businesses remain focused on their higher paying clients, allowing the newcomers to move up the ladder. Disruption occurs when mainstream customers flock to the newcomers’ offerings. Christensen suggests that Uber is not disruptive because it doesn’t cater to the low end of the market, and because the product it offers is not perceived as lower quality than current taxi services.

So remember, if you want to be a disruptive technology, you have to start out cheap and bad, and then get better while remaining cheap.

The most vibrant piece of the most recent QCEW report for Q2 2015 was the 2.8% over-the-year increase in the number of employing establishments. These are not necessarily startups, as they can be new locations of existing corporations, but it is nevertheless encouraging to see some action in this vital component of the job machine. As we often point out, young businesses generate a mighty share of gross job gains, even if they fail at an alarming rate as well. The failure rate, though, has a bright side in that it reallocates resources, which contributes to productivity. (As does job churn—when workers move between jobs they often carry innovative ideas with them.)

And new employing establishments are the ones who would really benefit from low rates on their loans, which they can still ink.This is, of course, only one quarter, which doth not a trend make. It would be great news if demand remains steady enough to give would-be entrepreneurs the confidence to build their businesses.